Letters

Letters may be published online or in one or more of Baird Maritime or Ausmarine magazine.

Reproducing editorials from Work Boat World and
Ausmarine.

By Neil Baird, Editor-in-Chief, Baird Publications.

Subsidies and cabotage strangle shipping

Tuesday, 01 November 2011 10:00

Baird Maritime / Ausmarine editorial - October 2011

Forty odd years ago when I was contemplating studying for a Master of Arts in politics I considered a thesis which would have looked at the inverse relationship between the rhetoric and the reality of political policies.

Now, after an almost similar period of involvement with the maritime industry, I have become convinced that my thesis could have been precisely applied to government “assistance” to the industry.

Having now closely observed the claimed costs and benefits of government assistance to a number of industries in a large number of countries, I am bound to say that almost all forms of government assistance lead to negative outcomes.

Subsidies, tariffs, entry restrictions, government loan guarantees, cabotage, tax holidays, transfer pricing, restructuring loans, irrational defence purchasing, duties, nationalisation, re-capitalising, employment and training incentives, call them what you will, they all interfere with true, open and fair markets. They cost the taxpayer dearly and usually make the recipient sleek, self-satisfied, inefficient and, in many cases, corrupt. They are economically, environmentally and socially destructive.

Unfortunately, the use of all these little politico-economic tricks is widespread. The interesting fact, though, is that in practically every case, their application leads to outcomes that are usually the exact opposite of what their recipients hope for and what their political protagonists promise.

Probably the worst example of the tragic results of this misuse of government incentives is in the United States of America. One way or another its governments have indulged in most of the “assistance” tricks. They are now mostly wrapped up in the all-encompassing Jones Act.

Sixty to seventy years ago America had a hyper-efficient shipbuilding industry. In the 1960s and 1970s it assisted Japan to re-develop its building and operating sectors. In the 1980s it did the same with South Korea. More recently China hasn’t required any such help.

Over the last sixty years America has thrown its advantages away to the point that, apart from a handful of notable exceptions, it now has one of the least competitive shipbuilding industries and fleets on the planet. What a tragedy.

Certainly, the global economic situation has changed thanks to globalisation but the USA never needed to go into reverse to this degree. Its decline has been one of the most dramatic in the world. The USA now ranks close to the bottom along with Britain and Sweden.

The big problem arising from this, of course, is that this disastrous outcome has occurred despite the expenditure of many billions of taxpayer dollars. This has mostly been sold to the public on the basis of saving American jobs. Of course, all it has really done is create a class of privileged, sacred, fat cats.

While the Jones Act continues to accelerate the decline of America’s maritime industry, it continues to absorb massive amounts of American taxpayers’ money. The latest obscenity of this kind has just been revealed in its totality. That is the US Maritime Administration’s US$140 million in loan guarantees to cover the construction costs of two fast ferries for Hawaii Superferry.

Thanks to the NIMBYism of some of Hawaii’s green extremists, this venture never had an opportunity to commence commercial operations. The venture went bankrupt and the two ferries reverted to the lender which has been stuck with them for two years.

This guarantee was under the so called Title XI programme which has rapidly seen 144 defaults amounting to nearly US$3 billion. Of course, this is only part of the whole American maritime scam. There is a lot more to it and the hard-pressed American economy is in no position to keep forking out money to this mollycoddled industry. Reality must and hopefully will prevail.

Meanwhile, immediately to the North, Canada, which is normally more sensibly managed than the United States, is looking at its own ways of throwing massive amounts of taxpayer money at its own maritime industry. It is only a few years since most of its shipbuilders went broke. Canada even had its own expensive fast ferry debacle with the crazy BC Ferries catamaran project. Now we hear of another massive injection of Canadian taxpayers’ money into the black hole of shipbuilding support.

The list goes on. Spain, Italy, Vietnam, Croatia, Finland and Greece, among others, are continuing to waste massive amounts of taxpayers’ money by diverting it to support the unsupportable parts of their maritime industries. The problem is that by doing so, they also manage to drag the good, efficient, competitive parts of their industries down with the bad.

In the medium-to-long term everyone, taxpayers and industry participants alike would be far better off without subsidies or cabotage.